Uncertainty over debt problems in Europe could keep benchmark US Treasury debt yields near six-month lows next week and is likely to trump the impact of debt auctions and data on consumer spending and manufacturing. Worries over whether Greece will be able to complete a debt bailout have bolstered the safe-haven allure of US government debt. On Friday, 10-year note yields dipped to 2.85 percent, marking the lowest since early December.
European union leaders have promised more money to help Greece avoid bankruptcy but its government must push through radical economic reforms to meet the terms of the bailout. "The situation in Greece could prompt a breakout in either (price) direction but the timing of key parliamentary votes is almost impossible to pin down ahead of time and the composition of the package will still need to be evaluated by the IMF, EU and ECB as well as the rating agencies," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.
"The number of moving pieces in the Greece situation adds to my trading range call for the next two weeks," he said. Treasuries have also been supported in recent months by buying from the Federal Reserve, which will continue next week. The Fed's $600 billion Treasuries purchase program, known as QE2, is scheduled to finish at the end of June.
"Even though we have a neutral stance, admittedly leaning bearishly, we recognise that several factors have combined to keep yields low, and these factors will persist through next week: European concerns, quarter-end balance sheet concerns, and the end of QE2," said John Briggs, Treasury strategist at RBS Securities in Stamford, Connecticut.
While events in Europe will be closely watched by US Treasuries investors, some domestic events of note are also scheduled which could affect bond prices. The Treasury will auction of $99 billion of two-year, five-year and seven-year notes on Monday, Tuesday and Wednesday respectively. Analysts will monitor the level of demand in the sales, especially given the comparatively low yield levels. Several top-tier data releases will also be watched for what they have to say about the extent of the slowdown in the economic recovery in the second quarter.
The government on Monday will put out personal income and consumption numbers for May. The median of forecasts from analysts polled by Reuters is for personal income to have risen by 0.4 percent last month after a 0.4 percent rise in April, while personal consumption is expected to have grown by 0.1 percent after a gain of 0.4 percent. June consumer confidence data will be released on Tuesday morning, to be followed on Friday by the Institute for Supply Management's index of national factory activity for June.
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